Keith Taylor, whose family founded the Rascals nappy business, choked back tears describing how his children were emotionally crushed after what he described as a “Hobson’s choice” buyout by consumer goods behemoth Zuru.
Taylor also told the High Court at Auckland he found himself “baffled” by restraint provisions he claimed were inserted late into buyout negotiations that prevented his family from selling nappies for five years to grocery duopolist Woolworths.
“It seems that Foodstuffs and the Mowbrays were insistent on protecting Foodstuffs’ interests by keeping potential competition out of the other side of the market,” he said.
Taylor was speaking as the first witness for the defence in long-running proceedings filed against him, his son Grant, and business group JJK.
Zuru alleged breaches of restraint provisions by Grant, and also that he provided confidential information about the nappy business to JJK Group, which snapped up ailing rival brand Treasures in late 2020.
Keith Taylor settled on the eve of trial in a deal where he made no admissions of wrongdoing and paid just $500 to Zuru to have proceedings against him discontinued. Grant Taylor admitted to several courses of action claimed against him and paid $1 million in a settlement.
The court heard Zuru is seeking more than $75m in compensation and damages, and billionaire Zuru co-CEO Nick Mowbray spent most of three days on the stand giving evidence last week.
The case is into its second of four scheduled weeks of hearings.
On the stand, Keith Taylor gave a detailed account of how he started the Rascals business, his dealings with Zuru and the Mowbray siblings, Nick and Mat, and what he described as an acrimonious $30m buyout of their half share in the nappy business in 2020.
He told the court he had left a career in the police to go into business for himself in 1978, and said his previous life in law enforcement had taught him to make regular contemporaneous file notes, which he referred to repeatedly during his testimony.
Nick Mowbray had bought into Rascals in 2017, taking a 40% stake, and Taylor recalled being summoned to the Mowbray mansion in Coatesville for a meeting with the billionaire brothers on March 5, 2020, to discuss the future of the business.
The mansion is a lavish estate on Auckland’s North Shore, once synonymous with its former owners, Kim Dotcom and the Chrisco Christmas hamper founders.
The meeting had been preceded by complaints from the Mowbrays, who claimed issues had been raised by staff about Grant’s management style as chief executive.
Taylor said these complaints were a mystery to him as his three family members - including daughter Louise - made up 75% of Rascals’ entire workforce.
“I remember that meeting well. Grant and I initially met with Mat in a small lounge with a large fireplace,” Taylor said.
He said that although the meeting was at Nick’s own home, he was late.
“When Nick did eventually join, he came up with a list of items he thought were all of a sudden working against the company he had once called a unicorn. He proclaimed loudly that Rascals and nappy businesses in general had no moat and that it was vulnerable to attack,” Taylor said.
Taylor said his family were given three offers: Be bought out by Zuru for $30m; buy out the Mowbrays for $30m; or list the Australasian business for sale by a third party but leave the Mowbrays owning its international arm.
“We were told that if we did not agree to these proposals, then the Mowbrays would just start their own competing company and nappy brand and that they would put Rascals out of business.
“Nick told us that if this happened, then he would look forward to buying the company off us for $1 in the future. I remember pointing out that under the Rascals International shareholders agreement, there was a restraint that would have prevented this,” Taylor said.
“Their response was, ‘our lawyers will get around that’.”
Taylor said the prospect of litigation was also raised.
“The Mowbrays strongly voiced to us that they never settle any legal disputes and take them all the way through the court process.
“We took these threats seriously, as we knew the Mowbrays were very litigious, ruthless businessmen and extremely wealthy.”
Taylor said of the offer: “The options were a Hobson’s choice. There was no viable option but to agree to sell during this meeting.”
A follow-up meeting to hammer out details took place on March 15 between Keith and Louise, and Mat Mowbray at Louise’s farm in Hamilton. The meeting, which started at noon, was brief as Mat was said to have his pilot waiting who had to take off at 1.30pm.
Taylor said his son Grant was not present as he “was so upset he’d not felt up to attending”.
Keith said the meeting was productive, but brutal: “It was a constructive meeting, although very hard on Louise, who was crying. Mat and I agreed to get a deal done as soon as possible.”
Taylor said: “I remember the meeting well, because Louise was absolutely heartbroken about what was happening, and was very upset. She made the comment to Mat that the business she had helped to create had all of a sudden been ripped away from her and Grant.”
He said after the meeting that Mat Mowbray messaged him on Whatsapp and said: “Today I understood more about the pain we have put you and your family through, and I’m really sorry about that. I’m feeling bad that we’ve caused this, and hope Louise gets through this and can move on with the next chapter.”
Taylor choked back tears when reading this message, apologising for the effects this corporate tussle had on his children.
Taylor said this meeting in Hamilton also marked the first time a restraint of trade was introduced by Zuru as part of the sale agreement. Nick Mowbray last week told the court it had been raised at the mansion earlier, a contention Taylor said was “false”.
“Mat raised the possibility of including restraint of trade, preventing us selling nappies to Countdown [now Woolworths] in New Zealand. I was not willing to accept the restraint of trade, because the discussions and our agreement to the price had all been on the premise that there would be no restraint.”
Taylor said he questioned the clause but was told by Mat Mowbray it was required by a Foodstuff executive.
“Mat had said that Foodstuffs were requiring it. Mat then said it was non-negotiable, and that it was a direction that had come from [Foodstuffs North Island chief executive] Chris Quin,” Taylor said.
Taylor told the court he was unable to get clarity on the restraint clause from the supermarket giant, and despite a Deloitte valuation suggesting the bid was at a discount because the Rascals business was worth $100m, he decided to fold.
“By this point, we had already decided we would be moving on from the company. The path of least resistance was just to agree. We’d taken a big discount on the value of our shares to be free to do what we wanted, but in the end, we gave up on that to get away from the Mowbrays.”
Taylor said he now had questions for Zuru and Foodstuffs. The court has earlier heard that Rascals has had a long-standing exclusivity deal with the supermarket giant that prevents it from selling to its rival in return for higher margins.
“Looking back at it now, I find it baffling that Chris Quin appears to have been so directly involved in the negotiations, given the restraint was limited to Countdown New Zealand.”
Taylor told the court he founded Rascals in 2014, along with his children, Grant and Louise, after his grandchild suffered a bad allergic reaction to mass-market nappies then being sold.
He said a key feature of Rascals was the use of water-based, rather than spirit- or formaldehyde-containing, inks.
Louise handled customer service personally, Taylor said, and his daughter set a five-minute response time for any queries: “I remember urging her to take a break from this on Christmas Day, when we were all together for Christmas. However, she carried on.”
Taylor disputed claims made in court last week from Nick Mowbray that he was largely responsible for Rascal’s success and business model, and that information shared by his son about the nappy business should be considered confidential.
Taylor said from its formation – and before Zuru’s involvement in the business – Rascals relied on social media marketing aimed at parents and geotargeting retail stores, a business strategy Nick Mowbray earlier told the court was introduced by Zuru.
“It is not correct for Nick to present it as if it was all his idea, or targeted digital marketing as some secret approach that he invented,” he said.
Taylor also said his previous business ventures commonly used free on board (FOB) shipping practices – moving product directly from factory to retailer – which Zuru claims is confidential information that should not be disclosed.
“Nick’s explanation of the FOB model in his brief suggests to me that he does not understand it or how we used it.”
Taylor also delved into nappy production and his experience visiting China to establish designs and production lines.
“Nick describes nappy specifications as being highly confidential. That’s not true. There are relatively few components to a nappy, and there is no patentable IP in the core design. The reality is that Chinese factories can reverse engineer a nappy in minutes,” he said.
“So far as I can remember, Nick never set foot inside a nappy factory during our time in the business, and I am not aware of him ever having much familiarity with, or input into, the manufacturing process”
Taylor said much of the Mowbrays’ and Zuru’s claims that these practices and exclusivity deals were secret did not hold water.
“None of these ideas are secret, special or proprietary. I’ve worked in business for decades, and just the sort of normal trade-offs you have to work through in any commercial negotiation like this,” he said.
He also said Nick Mowbray’s initial financial investment into Rascals in 2017 – a contribution of $60,000 in share capital – was late.
“I had to bridge that share capital.”
He said Nick Mowbray’s initial involvement in Rascals was under his own personal name, and not Zuru’s, and he had discussed why with his son.
“I remember Grant telling me that it was important to Nick that the shares were held in his name, as he wanted to prove to his brother [Mat] and sister, Anna, that he could run his own business without them,” Taylor said.
Taylor told the court he was proud to have been involved in making Rascals a success.
“It was turning over $41 million plus per annum, pre-sale, all on a paid-up capital of $150,000 ... and an asset register of approximately $12,000. No loans, no overdraft. I heard Nick refer to it as a unicorn company, and it was,” he said.
“Contrary to what Nick now says in his brief, we were never losing money.”
The trial, and Taylor’s testimony, continues.
Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism – including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.